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Carl Icahn sues Lionsgate over equity swap

Seeks injunction to rescind deal between studio, Rachesky

TORONTO -- Carl Icahn is taking Lionsgate to court to overturn its debt-for-equity swap with major shareholder Mark Rachesky.

Icahn on Monday said he filed a lawsuit in the New York State Supreme Court against Lionsgate, its board of directors, Rachesky, the mini-studio's second-largest shareholder, and Kornitzer Capital Management and its principal John Kornitzer.

The corporate raider is seeking a court injunction to rescind a deal between Lionsgate and Rachesky, a former Icahn protege, to buy and convert $100 million in senior notes to reduce Icahn's stake in the Vancouver-based company from 37.3% to 33.5%.

"If allowed to stand, this scheme will insulate the directors and management from having to face a fair election at the upcoming annual meeting of Lionsgate's shareholders," Icahn added as he looks ahead to a threatened proxy fight at the company's upcoming annual shareholders' meeting.

Lionsgate's equity swap with Rachesky was made public last week a day after the end of a temporary ceasefire with Icahn, and the billionaire investor launching yet another tender offer for outstanding shares in the mini-studio, this time at lower $6.50 price.

Lionsgate had no immediate comment Monday on the latest salvo fired by Icahn as he continues a high-profile battle for control the mini-studio.

Icahn's latest legal arsenal includes a petition filed on July 23 in the Supreme Court of British Columbia to set aside the recent note exchange and new share issue to Rachesky and his investment fund.

In addition, the British Columbia Securities Commission has scheduled a hearing on July 28 to consider whether Lionsgate's debt-for-equity swap violates the provincial regulatory agency's statutory jurisdiction.

Icahn, who has a history of trashing the senior management of companies he seeks to control, in a statement Monday said Lionsgate did not fully disclose last week the terms of its equity swap with Kornitzer Capital Management.

In particular, Icahn insisted Lionsgate effectively raised Rachesky's stake from 19.9% to 28.9%, while diluting the holdings of all other company investors, including himself.

"These transactions, in which the board of directors of Lionsgate provided stock that was acquired by Mark Rachesky at the bargain price of $6.20 per share, after recently advising all Lionsgate shareholders not to accept my previous tender offer of $7.00 per share because the price was allegedly 'inadequate', have the effect of insulating the existing directors and management from a proxy fight, as well as enriching one director at the expense of all shareholders," Icahn argued.

The activist shareholder added he will not take Lionsgate's " rapacious tactics" lying down.

"We view this transaction as a prime example of scorched earth tactics executed with other people's money -- in this case, the money of Lions Gate shareholders -- and they will be met with an equally forceful response," he warned.